A week jam-packed with Nintendo news was overshadowed today by an announcement that sent shockwaves through the North American game industry. Thursday afternoon, top publisher Electronic Arts announced that it will acquire VG Holding Corp., owner of BioWare/Pandemic.

VG Holding Corp. was formed in late 2005 when esteemed Canadian role-playing game studio BioWare formed the aforementioned "superdeveloper" with Californian shop Pandemic Studios. The union was funded by Elevation Partners, a venture capital firm with rock star Bono on its board, and brokered by then-Elevation board member John Riccitiello, who became BioWare/Pandemic's CEO.

At the time, the deal was seen as a break from the traditional developer-publisher relationship, which sees the former beholden to the latter for funding. However, when Riccitiello returned to his old job as EA CEO, many wondered if the move might presage a takeover bid of BioWare/Pandemic. These suspicions were further raised when EA agreed to distribute the Pandemic shooter Mercenaries 2: World in Flames under its EA Partners program.

When the BioWare/Pandemic deal was announced, Elevation made much of the fact the union represented a "combined investment" of more than $300 million, including future funding. Today, the company got a massive return on said investment, with EA paying $620 million in cash to the stockholders of VG Holding Corp. In addition, the publisher will issue an additional $155 million in equity to unidentified VG Holding employees, as well as assume $50 million in outstanding VG stock options, and will lend VG $35 million to fund the transition.

In return for paying a princely sum, EA becomes the owner of both BioWare's and Pandemic's original properties. Jade Empire, Mass Effect, and Dragon Age are among BioWare's original IP, which does not include such licensed hits as the Dungeons and Dragons-based Neverwinter Nights, Star Wars: Knights of the Old Republic, or the DS Sonic RPG. BioWare is also working on an unnamed massively multiplayer online role-playing game. Pandemic is best known for the Full Spectrum Warrior and Mercenaries series, as well as the THQ-owned Destroy All Humans! and LucasArts-owned Star Wars: Battlefront franchises.

However, EA was relatively cagey about which BioWare/Pandemic games will become EA properties. The announcement only mentioned one BioWare (Mass Effect) and two Pandemic games (Saboteur, Mercenaries) by name. However, it did say the two studios have "10 franchises under development, including six wholly owned games."

Pending regulatory approval, EA's takeover of BioWare/Pandemic will be final on January 2008. Both studios will become part of the EA Games division, run by Frank Gibeau, with Greg Zeschuk and Ray Muzyka continuing to run BioWare, and Andrew Goldman, Josh Resnick, and Greg Borrud staying in charge of Pandemic. The two studios employ 800 people in Los Angeles; Austin; Edmonton; and Brisbane, Australia.

[UPDATE] In a conference call with analysts after the announcement, EA executives shed some light on the motivation behind the deal. Besides the impeccable pedigree of both studios, Riccitiello said that the "acquisition fills out a gap in [EA's] genre lineup," specifically the role-playing and action adventure markets. The executive also cited BioWare's forthcoming MMORPG as a huge opportunity for "further expansion into the MMO space."

Although the implication is that the BioWare MMORPG is an original IP, Riccitiello and his associates steered clear of saying so specifically. He did say that the deal will make EA the owner of the Mass Effect, Jade Empire, Mercenaries, Full Spectrum Warrior, and Saboteur properties. The executive also said that EA "expect[s] to bring 10 franchises to market in the next few years; six of which are wholly owned." [UPDATE 2] No mention was made of Dragon Age but BioWare reps confirmed with GameSpot that the little-seen title is moving forward in development, and is already in playable form.

Later, Gibeau said that number includes "many titles that have not yet been announced that we will be announcing in the near future." These include "several unannounced titles that are targeted both at the Wii and DS." The two studios' combined operations are expected to yield around four or five games each year for the next three fiscal years.

On the financial side, EA CFO Warren Jenson said that that he expects games from the two studios to generate over $300 million in annual income during EA's 2009 and 2010 fiscal years. (EA's 2009 fiscal year begins on April 1, 2008.) He later said that number would increase once the BioWare MMORPG launches "in the back half" of that period.

And this buy out doesn't say too much about BioWare, they probably dont want to stick to the software they were using before. EA knew they could take over with Madden and this shows how money grubbing hungry they are.

Despite the heavy proportion of ex-EA employees in the company, the reaction was generally muted and contemplative. What might have been an otherwise depressing and angry day at BioWare was salvaged by the man at the heart of this story: John Riccitiello. Following the resignation of Larry Probst, John acted quickly and began implementing his vision, including the removal of a central design team that created jobs for itself by, for example, mandating a single interface for all of its team sports games that, while attractive, was a horrible interface.

John Riccitiello is also the man, who in his first interview since taking over of EA, said that ’sequels are boring’. Does that sound like a statement coming from the mouth of a traditional EA executive? I don’t think so, and apparently enough employees at BioWare agree enough to reserve any outcries of doom at least for a while.

The sober, thought-out feeling is that Riccitiello hitched his wagon to BioWare-Pandemic. They won’t be subject to the regular EA hierarchy, they won’t be given design ideas by EA, and they won’t be indulging in sequelitis (though as an aside, the Mass Effect 2 staff would love the opportunity for a sequel). In fact, the chain of communication will be John Riccitiello -> Frank Gibeau (President of EA Games) -> Greg Zeschuk & Ray Muzyka (BioWare co-founders). That’s it.

Our bet is that Riccitiello has done as much as he can at EA proper without bringing about a revolt against himself. The company is quite entrenched in its ways after a decade and a half of leadership from Larry Probst, and that is when it developed the reputation for buying a developer and milking its properties drier than a Sahara rock. Any further changes risk upsetting the shareholders and management who don’t see a creatively empty shell, but rather a highly profitable company that has found the formula for growing money off video game trees.

The BioWare-Pandemic buyout may be a bid to start EA on a new course, one already plotted by Activision: acquire a good developer, finance them, and permit them room to do their own thing, offer leadership and a kick in the ass only if necessary. Presumably the new EA CEO sees the disastrous long-term consequences of creative bankruptcy, and is seeking to remedy them by allowing BioWare and Pandemic the freedom and finances to do something spectacular on a regular basis. Specifically, during the conference John had stated that EA was impressed with BioWare’s Metacritic score, a rating in which EA has slipped in over the past few years, and a statistic which caused on analyst to say the EA brand has been tarnished

The downside, however, is that John has arguably bet his own personal political bank at EA on BioWare and Pandemic. Should they not deliver to expectations, their failure could be an excuse for traditional EA elements to remove Riccitiello and return to EA’s profitable-but-boring sequelitis ways. This, of course, will mean the doom of BioWare in the way that Westwood, Origin, Bullfrog, and Maxis were wiped out. With any change comes friction, and there is little doubt that by cutting into the bloat in EA and by bypassing the traditional EA power structure with BioWare-Pandemic, John Riccitiello has created enemies in the company. Like, say, people who think that a slow, unwieldly, but attractive interface in the name of the Almighty Brand is a good idea.

If John Riccitiello is for real, to which we’re giving a tentative nod, and if he can tame the EA Beast, it’s up to BioWare and Pandemic to see his vision through.

The challenge for BioWare will be calming all the ex-EA folk, most of whom are in Austin and left even before the days of the EA Spouse scandal which helped normalize work hours at the company. Then the company needs to work on its delivery schedule, notorious as they are for always being late.

Also, as I understand it John Riccitiello was one of the three major partners in the holding company that owned Bioware. So basically he took them with him to EA, but they were already working under him.